• Rural banks told: Act before it’s too late


    The upcoming integrated economic community for the Southeast Asian bloc is widely expected to benefit all participating countries as it would open a larger market that is yet to be explored and tapped. Such integration, however, will likely increase competition, which might be too much for some local businesses to handle and cope with.

    In this context, Mr. Gus Poston, co-founder of Bridge Advisory, a consulting and investment firm that focuses on provincial banking in Asia, urged rural bankers to “take action before it’s too late.”

    At the recent Rural Bankers Association of the Philippines’ (RBAP) Annual National Convention, Mr. Poston said that come 2016, large banks would gain scale and account for bulk or at least 70% of the Philippine financial system’s total assets.

    On the other hand, he said small banks might struggle to maintain their share due to several internal issues that weigh on their performance. These factors include lack of product innovation and focus on the part of the owners.

    These internal problems, if not addressed immediately, would make it difficult for small banks to compete head-to-head with commercial banks. Nonetheless, Mr. Poston said one sure way out of such a dilemma would be to consider a merger.

    Echoing the recommendation of regulators, Mr. Poston said small banks must find a partner with capital and expertise. He cited Bohol-based First Consolidated Bank, which grew through mergers with 16 other banks in the province. Today it has P10 billion in total assets and a network of 65 branches and 20 marketing outlets.

    Both the Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corp. have been pushing for the same strategy among rural banks. In fact, BSP has extended its Strengthening Program for Rural Banks (SPRB) Plus until the end of this year to give more time for banks and strategic third-party investors to merge or acquire small banks.

    Several rural banks have already heeded this call. One Network Bank (ONB), for instance, has grown to become the country’s largest rural bank through consolidation deals, the most recent of which was with Iloilo’s Rural Bank of San Enrique. With already 100 branches nationwide, Mindanao-based ONB is still eyeing further expansion in the Visayas region.

    Meanwhile, for banks that wish to continue the business alone, Mr. Poston suggested that they find and focus on a niche where there is less competition. He also urged them to invest in product development, staff enhancement and risk management measures.

    To these suggestions rural banks have been eager to comply. To boost their product offerings for their clients, several rural banks have decided to venture into microinsurance. As of March, a total of 213 rural banks and cooperative banks have already completed RBAP’s two-day microinsurance training course, while 41 rural banks have already obtained licenses as microinsurance agents.

    Trainings and seminars are also being developed and regularly conducted to help enhance the knowledge and capabilities of rural bank personnel. For the last 11 months, the Rural Bankers Research and Development Foundation, Inc., the technical arm of RBAP, has already conducted 84 trainings and seminars that benefitted 3,380 bank personnel from over 1,500 rural bank offices nationwide.

    Challenges such as stiffer competition are inevitable, especially in a country that’s in an economic boom. Fortunately rural banks, despite their struggles, remain steadfast in their mission of driving development in the countryside by providing financial services to our underprivileged kababayan.


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